Don’t Believe Everything You Read
There has been a lot of buzz regarding the short interest drop in Sirius XM shares of late. If you believe the NASDAQ, which would seem like a reasonable thing to do, you may be as quick as I was to come to the conclusion, that the number of shares shorted has declined by nearly a third.
Unfortunately, the numbers I feel, do not add up. Leading up to the merger there were nearly 160 million shares reported short on July 15th. That number ballooned to over 310 million on July 30th and then dropped to only 209 million shares on Aug 15th.
| Settlement Date | Short Interest | Avg Daily Share Volume | Days To Cover |
|---|---|---|---|
| 8/15/2008 | 209,124,306 | 103,062,578 | 2.029100 |
| 7/31/2008 | 310,672,182 | 77,266,333 | 4.020796 |
| 7/15/2008 | 159,958,339 | 24,495,816 | 6.53002 |
The problem that has been eating at me is that the stock itself has not behaved like a stock should have, if such massive short covering had actually occurred. In fact, the stock declined in this period, as it has subsequently done for the latter part of August.
Some speculated that the reason could be associated with the merger arbitrage play. I cannot accept that either. At the time, Sirius was on the Regulation SHO list and as such, created a situation in which there no shares available to short. This was in fact the reason that Sirius had to offer the shares in the borrowing agreement. As we all know from the recent convertible offer, there were an aggregate 262,399,983 shares that were going to made available for the sole purpose of being shorted against, of which 183,679,988 shares were immediately used for that purpose.
Taking a closer look at the sharp increase that occurred between 7/15 and 7/31, it is conceivable that the increase was simply the pre-existing short interest of 160 million plus most of the 184 million shares available under the share borrowing agreement which would equal 343 million shares. As the merger was actually consummated in the first week of August, this is much more likely, in my opinion.
The next logical question one must ask becomes; What happened to the rest of the shorted shares? I believe the answer lies in the NASDAQ’s own website. I propose that the information is wrong, and is based on the former CUSIP number that SIRIUS shares were registered under. I believe the new Sirius XM shares have not yet been recognized for these reports, or if they were, have been reflected inaccurately due to the merger date falling on or around, the short interest report date.
That makes sense on paper, but does it hold water? A simple check of the NASDAQ site of insider and institutional holdings of SIRI reveals the message: “There is no information available for this security“. That is one heck of a clue if you ask me! I translate this to mean that they in fact do not have sufficient information on the new security based on its new CUSIP number. It stands to reason then that the short interest they are reporting may in fact also be incorrect, as it took several days for most people to see their shares converted in their own accounts, at the beginning of the month of August.
I would not be surprised to learn at all, that short interest has actually increased and that naked shorting is again running rampant. Unfortunately, considering the NASDAQ’s delay in reporting this information, we may not be able to confirm any of this until nearly the middle to end of September.
Position: Long SIRI
I respect the fact that you are trying to get to the bottom of the situation Brandon, why don’t you contact the SEC or other Federal Regulators to assist in this if you are so suspicious that something wrong or illegal is happening? Why don’t you contact mkarmazin@sirius.com and get him properly motivated behind your cause? You seem to write this only for the benefit of a few readers which seems silly and a waste of time.
I have said that in prior posts, again to total ignorance. I will repeat it again. It is virtually impossible to have 100 million short shares covered without the pps going up.
Brandon: you and Tyler and the other contributors to SiriusBuzz are very insightful and provide alot of great information. I agree with Will that some of this smacks of illegal activity (including naked short selling & Cramer’s comments), and I would encourage you to bring this to the attention of the SEC and to Sirius management. This may already be in place, but if not, I think you would be doing everyone a favor if you took that kind of action.
SiriusXM…
If I had been ignoring you, this article would not have be written. It is because of your posts that I researched and wrote about my findings. Making a claim that something is untrue in print requires research rather than a kneejerk reaction
I believe sweeping naked short reforms are coming from the SEC in a few weeks. So this could be partially to blame as well.
Lots of stuff happening fo sho.
Can’t wait to hear what Mel has to say next week.
I said the exact same thing earlier on. Many of these sites still don’t have everything straight. I notified NASDAQ about 2 weeks back and they said they would look into it. Obviously, it is not a priority for them. IMO, the 300M is wrong and relates to the existing shorts and converted XM shorts at the merger. But as we are aware, the XM shorts didn’t convert (or so we were told). The 200M number looks to me like it could be right. It is also the reason we are off the REGSHO.
Hey Brandon, you respond to Sirius/XM investor, but choose to ignore both comments from myself and Lynn, what gives? I mean seriously Brandon your comments are great, and I respect you for doing the research and taking a proactive stance on the matter even challenging the bafoonery of Jim “The Clown” Cramer, but why don’t you take this research and findings of yours directly to Mel Karmazin or take it directly to SEC and Feds? It is a serious issue and this is a question not a statement? Why don’t you take your research and findings and commentary directly to those that can actually do something about it? It is very interesting to read and edifying, but we cannot do diddly about it, and Mel Karmazin and the SEC can so answer my question. Are you taking this information to them or not?
Will…
I have filed many of my findings with SEC in the past.
I do not take anything to Mel because quite frankly, they have nothing to do with SiriusBuzz and I doubt he would take anything I had to say seriously. I know of others who have brought these things to Mel. That’s fine.
I’m sure he is much better at running the company than I would be. They have a legal department and I’m sure they will act when and where they deem it appropriate.
The SEC does not give any information as to their current investigations and will not confirm nor deny any investigation is occuring.
Brandon,
With all due respect to you and your response which I do appreciate and value, you are copping out man. You have a forum that has power by virtue of your following. Your flock expects you to use the power of numbers to create change especially when we do not have any power.
You say you filed with the SEC in the past, well, it is only recently that Jim Cramer “crossed the line” as you said so eloquently and have you sent SEC the finding of your piece that suggests a lawsuit ought to be intiated against him? I know I have, and they did respond by saying they would look into it, what about you?
Sirius buzz having nothing to do with Sirius/XM has nothing to do with whether you direct comments or articles and our responses to Mel Karmazin directly or not. I called Mel Karmazin directly, left a message, and he called me back, I have his direct number in New Jersey (No kidding) and he did care enough to hear out what I had to say. He would value your opinions and thoughts very much, you are not telling him how to run the company, you are informing him of issues that are important that need to be addressed, and you are giving him vital feedback as to the thoughts and feelings of actual shareholders and actual subscribers in the aggregate. How can that be a bad thing?
Mel Karmazin cares more than you give him credit for, and if the real reason you do not wish to convey your articles or feedback to him is because it takes too much time, and you are already booked up with your current responsibilities then so be it, just say so, but do not pin it on you not thinking he cares or they have a legal department for that. That is a cop out, and I respect you, but that simply is a cop out.
If you afraid to draw direct attention to yourself when challenging powerful personalities like Jim Cramer because he is backed by big pocketed GE & NBC with teams of lawyers, then say that, but do not wimp out at taking on the real challenge here which is something getting done about it.
You could simply add mkarmazin@sirius.com as a cc to each and every piece you do, let him decide what to do with it. You could send it also to pdonnelly@sirius.com he is the General Counsel of the legal department and let him be the judge and jury of your thought provoking and insightful pieces.
I have a close relative that actually worked as a US Attorney at the SEC, and quite frankly most of the tips and cases they get are from the general public or people like you so do not suggest to me that they do not listen or do not comment. They reply that they can’t keep you informed of the investigation they launch, but they will investigate the information when it is presented to them coherently and logically which your information is.
I am giving you a compliment in telling you that you are very good at what you are doing, but as your loyal viewer and audience, I will only remain so when I know you are committed to actually making a difference and not just writing investigative and cutting edge stuff for the mere entertainment value to a few retail stock holders and viewers of your blog.
I hope you take this seriously because most people do not care about making a difference and you should care since you have the obvious talent.
Just my views, if you care about them.
I’m sorry to disagree with you very emphatically… the numbers very much so add up.
Prior to the merger announcement, Sirius’ short shares were around the 50 million mark… after the merger was announced, it slowly built up — with the final before the merger (in mid July) being about 160 million.
When UBS and Morgan Stanley took possession of the borrowed shares from Sirius, the hedge funds sold short a number of them on 7/28/08 — in a pre-arranged sale at $1.50 per share. The key to remember here, is that this was an alotment that was UP TO 183 million… it did not have to be 183 million, but it could have been. When you add these on to the previous 160 million share short on 7/15/08, you get a huge jump. Not to mention that there was probably some other covering going on at the time. So this explains the ballooning to 310 million short.
The merger was then completed the next day, on 7/29/08 — which caused the arbitrage players who had slowly been taking their short position over the previous year plus (taking Sirius’ short sales from around 50 million to 160 million). As their positions were closed out via the merger — that eliminated some 100 million short sale positions in the process… lowering the short sales to the current 200 million level. That being made up mostly by the borrowed shares that were shorted. It makes no difference that they were on the REG SHO list — because the shares were loaned by Sirius to UBS and Morgan Stanley for hedging purposes… Sirius acknowledged this. The remaining share shares (other than those borrowed for the debt placement) make up roughly 30-60 million. About where Sirius was prior to the merger announcement.
The numbers add up — and the timing of it is perfect.
——-
HMMMMMM Petition
homer…
We must agree to disagree. If this were the case there would be no shares short with the exeption of the new borrowed shares. there are other convertibles outstanding that were also shorted against. It does not add up. Just the existing convertibles alone would account for more shares short than are being reported. The information cannot be accurate.
What about xm short shares? If they converted by 4.06 we should have seen a spike from those as well.
This is one of the best threads yet, cuts closer to why the SP is so depressed. Keep digging. Reminds me of cluster computing. One networked machine has only so much power; however, interconnected machines operating across a network can solve exponentially more complex problems and faster. BTW, I got a promo item from Ford today for the ’09 lineup and in it, on the back cover, was a clever marketing piece containing an invite to Ford owners to logon at fordowner.com to, among other things, “take advantage of special offers.” Owners need their VIN and mileage. In the same piece are four logos: Ford, Dell, Marriott, and Sirius Satellite Radio. I’m a Ford owner and will check it out. Also, Will lighten up on Brandon. Check out his past posts if you’re new here. I use this blog and Seeking Alpha more than CNBC, MSN, and other commercial sites to stay informed about SIRI–thanks in large part to Brandon’s hard and continuing work, including on the related live weekly call-in and chat show. This IS the new media–interactive and empowering. And, it seems to me that Sirius XM and its competition probably keep tabs on this and related blogs. At least they should, from a business perspective. (PM is FNG on Seeking Alpha / will fix this soon.)
PM,
I am not picking on Brandon, I respect his work enormously, and actually have complimented him on his talent for investigative journalism in the bloggersphere outpost of Sirius buzz. Both Tyler & Brandon are my main source of up to minute information and insightful pieces on Sirius/XM. I only challenge him to not use Mel’s perceived lack of interest or the SEC’s lack of communication as an excuse as to why not to forward his work to them both. Mel Karmazin is perhaps the most hands on and intense executives focused like a laser on his business, and if he receives Brandon’s work via e-mail at mkarmazin@sirius.com, you bet he reads it. That’s all I am saying, go the extra distance, cc both mkarmazin@sirius.com & pdonnelly@sirius.com (the chief legal office) on your thoughts and work, let them decide what to do with it. Include the SEC, and let’s them decide if it merits further investigation or not.
That is all I said, I am a fan of Sirius Buzz and a fan of Brandon & Tyler for doing superb work, case closed.
Guys..
I just want to say how much I appreciate all the good mentions. I would partake in the discussion but right now, I feel that informing people of the hurricane coverage in the gulf is a higher priority.
I am attempting to contact other sirius sites to inform them of the Sirius news release to help get the message to those people that are affected.
Commendable, Brandon. Direct quote on CNN tonight by NOLA Mayor Ray Nagan: “You need to get your butts moving out of New Orleans right now.” I noticed that Satwave.com is also covering Sirius XM hurricane support. Read on Satwave.com, too, that per CRFCEO we shouldn’t expect to learn about guidance until next Friday. See Satwave entry titled, “SiriusXM, The Week Ahead.” If it’s not the weather at one level, it’s the risk of appeal filings at another.
Brandon, FWIW all XM short positions were closed out with the merger. When the merger closed, the Transfer Agent in charge of converting the XM shares to Sirius shares, called all XM shares. If a person is short XM, the must buy them on the market and return them to their brokerage — who then had to turn them in to the Transfer Agent. Unlike options, short positions don’t tranfer in a stock for stock merger. They are closed out.
As for Sirius’ short positions — the current 209 million is made up primarily of the recently shorted 183 million (or whatever amount was taken by the hedge funds in the placement). The remaining amount are “other” short positions. 100 million of the 310 million were closed out by the merger. These were the Arb players that took their position over the last 18 months.
The key to remember is the timing. The placement by Sirius of the 183 million (or whatever amount actually sold) took place on 7/28/08 — with the settlement occuring on 7/31/08. This means that the newly shorted shares would be included in the end of July short sale report. However the merger closed on 7/29/08 — any covering on that date (via the 100 million Arb players) would NOT be included. That is because their settlement date would not be until 8/1/08 (or after due to the length of time it took for the transfer agent to make the exchanges). That change would not be reflected in the short sale report until the mid August report.
Look at it via a timeline:
(approximately) 50 million short — February 2007 short report
160 million short — July 15, 2008 short report (for positions previously held or taken between June 27 and July 12, 2008)
310 million short — July 31, 2008 short report (for positions previously held or taken between July 13 and July 28, 2008)
209 million short — August 15, 2008 short report (for positions previously held or taken between July 29 and August 12, 2008)
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The growth from 50 million to 160 million was done mostly by the Arb players over the 18 months leading up to the merger (increase of 110 million);
The growth from 160 million to 310 million was done by the hedge funds, in the Sirius placement (increase of 150 million);
The reduction from 310 million to 209 million was done by the Arb players closing their hedge positions with the closing of the merger (decrease of 101 million).
The timing is there, as is the approximate number of shares involved.
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Homer985, I have followed your logic and applied my own assessment to the short position and my conclusion is as you say. The Arb players and the lent shares combined with pre merger short shares come up reasonably close to the posted short position change of 100 M shares.
There isn’t any “Ghost In The Machine” as is being speculated here. The resolution on these numbers from reporting agencies during the merge and in the weeks shortly after is “coarse” at best. This is a “short” position in the making, being transformed by a lot of known variables.